3 The Regulator's proposals to protect
social housing assets
28. The new challenges faced by the social housing
sector and, in particular, the growing diversification of the
activities that the providers are undertaking, have meant the
Regulator "does not feel that it obtains sufficient comfort
[...] that social housing assets are not being put at risk from
non-social housing activity".[60]
Its discussion paper, Protecting Social Housing Assets in a
More Diverse Sector, sets out the nature of these challenges
and possible regulatory responses. The proposals for change focus
on ring-fencing of social housing assets to ensure that social
housing is not put at risk when providers diversify their activities,
recovery planning and protecting public value on disposal.
29. We have not taken detailed evidence on the
proposals in the discussion paper and we are not in a position
to reach conclusions or make recommendations. What we set out
in this chapter are some observations which may assist deliberations
and implementation of any changes. The sector is changing significantly.
As Places for People pointed out: "income from operations
outside social housing [is being used] to subsidise the development
of [providers'] social housing businesses whilst also using the
strength and predictability of the social housing activities to
compensate for the risks inherent in the other activities".[61]
We commend the Regulator
for seeking to update the regulatory regime as the sector changes.
We also welcome the fact that the Regulator is considering the
need to protect social housing assets.
30. That said, many providers have been critical
of the ring-fencing proposal, telling us that it is too prescriptive
and too much of a 'one-size-fits-all approach'.[62]
Leeds Housing Forum, for example, told us that:
Of particular concern [...] is the ring-fencing proposal,
which as written would restrict the activity of Housing Associations
to the provision of general needs rented housing and pretty much
nothing else (bar a minor tolerance of 5% activity). The scale
of social investment, regeneration activity, and care related
activities some [Registered Providers] currently undertake [...]
would have to drastically reduce, and in many cases may stop altogether.[63]
The g15 Group, representing fifteen of London's largest
housing associations, said that:
The HCA should stay true to the principles of co-regulation.
It is the job of each [housing association] board to assess risks
in the round and satisfy itself that appropriate strategies are
in place to mitigate them. As part of this, the board may decide
to place diverse activities into separate subsidiaries and should
limit its investment in them to an amount which does not place
existing social housing assets at risk; alternatively it may choose
another approach. But it should not be for the regulator to prescribe
what it should do.[64]
Similarly, Home Group commented on the recovery planning
proposals:
We submit that the main focus for the regulator is
to develop a system that is proportionate, balanced, represents
value for money and which acknowledges the pre-eminent role of
the boards of providers to co-ordinate recovery planning (rather
than the regulator). The sector would not benefit from the introduction
of an arbitrary and prescriptive system of recovery planning,
which would run contrary to the principle of co-regulation underpinning
the Regulatory Framework.[65]
31. When he gave oral evidence to us the Regulator
was sympathetic to the call for a more tailored approach:
I cannot over-emphasise the extent to which associations
differ very widely in their size, scale and range of activities
[...] They are very different and have different needs. It does
not make it easier to regulate but those are differences that
we have to recognise in the arrangements we make to monitor and
regulate them [...] We are not seeking a one-size-fits-all-solution.[66]
Nevertheless, he explained that:
The regulatory architecture we have to work with
is one that sets standards, and then we have a set of powers that
we can use to make sure those standards are met. That is the way
the regulatory system has been set up. It is not a system we have
devised. That is the statutory arrangement.[67]
32. At the evidence session the Regulator said
that his proposals were not set in stone and he had reservations
about ring-fencing social housing assets in all circumstances:
I am not convinced that ring-fencing is necessarily
the most appropriate tool for the majority of associations. [...]
The rationale for having it in the discussion document is to get
providers thinking about the extent to which it is reasonable
to use social housing assets, in which the taxpayer has put significant
investment, to support commercial activities.[68]
Subsequently, the Regulator indicated in a newspaper
article that he had dropped his proposals for ring-fencing for
not-for-profit providers and that he would undertake a further
consultation exercise on detailed proposals in due course.[69]
It would have assisted our deliberations if he had communicated
his change of mind directly to us.
33. Moody's has commented that "the practical
implementation of these proposals will be challenging and it is
unclear whether they will effectively improve intervention and
oversight".[70]
We support the aim of protecting
social housing assets and tenants from the risks associated with
non-social housing activity by providers but the current proposals
lack flexibility and appear to cut across the system of co-regulation
which gives providers' boards the responsibility to assess and
mitigate risk. We welcome the decision of the Regulator to revise
his proposals and to consult again.
Resources and capacity
34. The Regulator's resources and capacity will
affect his ability to regulate both existing and new standards.
The evidence we received from providers suggested that the Regulator
may not have sufficient resources to deliver a co-regulatory approach.
For example, the Hyde Group stated that it is "concerned
about the capacity of the Regulator to undertake co-regulation
in regards to financial viability and governance";[71]
PlaceShapers expressed "a continuing concern that the [Regulation
Committee] may not be able to recruit and retain the calibre of
staff needed to discharge its role effectively" and it had
"numerous examples of regulatory staff appearing still to
be more interested in ticking boxes to confirm, for example, that
[...] Board meetings have been attended";[72]
and Places for People warned us that "in order to prevent
systemic failure and ensure robust and effective regulation, the
HCA's intellectual and financial capacity will need to be boosted".[73]
35. The Home Group pointed out that the Regulator's
proposals to amend the standards might require him to have a different
resource profile than that which he had at present:
Inevitably, the increased level of information and
data trail which providers will be required to maintain as part
of the recovery planning process will not only require additional
resourcing by providers but—critically—additional
resourcing on the part of the HCA itself. Not only will the regulator
need to recruit additional regulatory staff to support a significantly
increased workload, but they will need to employ staff with a
much more extensive skill set than is required at present. We
are concerned that this capacity does not currently exist. Its
development must be a fundamental pre-requisite to the successful
implementation of any change.[74]
36. The Regulator told us that:
We have the resources that I think are sufficient
in financial terms at present, but [...] we need to significantly
enhance our capacity to make high level business judgements about
providers. We are doing that by reorganising within the obvious
financial constraints that apply to us. I would hope by the end
of the year that we will have approximately three times as many
senior managers in the regulation division as there were at the
point when I took on responsibility.[75]
37. The providers' submissions
about the resourcing, capacity and capability of the Regulator
gives us grounds for concern. It appears that the current arrangements
may not be adequate and need improvement. The fact that the Regulator
himself has identified a need to increase significantly his capacity
to make high level business judgments about providers appears
to confirm the providers' views. The reorganisation will have
to be carried out without any additional resources and without
a hiatus diminishing the Regulator's scrutiny. We request that,
once the reorganisation has been completed, the Regulator provides
us with a report on the Regulation Committee's capacity and capability
to carry out its work.
60 DCLG, Protecting Social Housing Assets in a
More Diverse Sector , April 2013, para 19 Back
61
Ev 48 Back
62
Ev 15 (Home Group), para 10, Ev 20 (g15), para 2.2, Ev 32 (Circle);
Ev 53 (Luminus Group), para 12, Ev 56 (Leeds Housing Forum), para
4 Back
63
Ev 56, para 4 Back
64
Ev 21, para 4.2 Back
65
Ev 15, para 11 Back
66
Qq 40, 70 Back
67
Q 64 Back
68
Qq 67-69 Back
69
"The way ahead", Inside Housing, 9 August 2013 Back
70
"Key Drivers of Moody's Downgrade of English Housing Associations",
Moody's Investors Service, 17 May 2013 Back
71
Ev 25, para 2.17 Back
72
Ev 49, Ev 50, paras 3.1 and 3.3 Back
73
Ev 48 Back
74
Ev 15, para 15 Back
75
Q 75 Back
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